Revenue Management in Hospitality - Assignment Example

Revenue Management in Hospitality Contents Industry Outlook of Theme Parks 4 Product analysis of Disneyland Park 4 Service portfolio of Disney California Adventure 5 Competitor analysis of Disneyland Park 6 Market segmentation strategy 8 What does the customer want to buy? 8 Why does the customer buy? 9 Where do they buy? 9 When do they buy? 9 What price do they want to pay? 9 Pricing strategies 9 Premium pricing 10 Special rate pricing 10 Cross segment pricing 10 Physical rate fences 10 Non-physical rate fences 11 Capacity management strategies 11 Distribution channel strategies 12 Online distribution channel 12 Offline distribution channel 13 Rules and restrictions 14 References 15 Industry Outlook of Theme Parks The theme park industry is spread across nations ranging from US, Europe, Middle East and Asia. It witnessed am overall growth of 5.4% while the top 25 theme parks in the world reported an overall 4.3% growth in 2013. Asia topped the growth chart with 7.5% compared to its other counterparts. US grew at 4% while Europe witnessed a flat growth. The leisure industry in the US ranks second to health care in terms of job creation. Leisure is the primary factor that leads to the changing culture in leading economies that has resulted in increased footfall of theme parks. The top 20 theme parks in North America have reported a footfall of 135.1 million with an annual rise of 2.7% over its 2012 levels, whereas top 10 theme parks in Latin America have witnessed a 3.8% growth in foot fall. Such increased level of foot fall is characterised by growth in leisure and international travels. Leisure travels witnessed an absolute growth of 11% from 2004 – 2013, whereas international arrivals saw a growth of 51%. The total visits of the top 20 theme parks in North America saw an absolute growth of 17% from 2004 – 2013, while the US population grew at 9% over the years. Product analysis of Disneyland Park Disneyland opened in 1955 and Disneyland California Adventure was established in the year 2001 and offers host of services that include attractions, rides, shows, refreshment stands, merchandise shops and diners which are clubbed under various names like Carls land, Condor flats, Hollywood land, Buena vista street, paradise wharf, pacific wharf and bug’s land. It also extended its service portfolio to resorts and spas. Disney resorts have 2400 rooms, conference space of 180,000 and 50 vacation clubs. Down town Disney is another attraction that is spread across 15 acres that offers entertainment, dining and shopping facilities. It is next to Disneyland and Disney California adventure ((Disneyland. 2015a). Service portfolio of Disney California Adventure Attraction Shows Attraction Type Animation Academy Interactive, discovery, character experience The bakery tour Indoor, discovery Francis’ ladybug boogie Spinning Golden Zephyr Spinning California Screamin’ Thrill rides, big drops, rider switch Table 1: Disney Californias main attractions Entertainment shows Entertainment types Anna & Elsa’ royal welcome Seasonal, character experience, holiday Captain America: the living legend and symbol of courage Character experience Fantasmic Fireworks, live entertainment Jedi training academy Live entertainment, stage shows Thor: treasures of Asgard Character experience Table 2: Disney Californias main entertainment shows Dining Type Alfresco tasting terrace Bars and lounges Ariel’s grotto Character dining Bayside brews Quick service Blue bayou restaurant Themed dining Catal restaurant Signature dining Table 3: Disney Californias dining outlets Competitor analysis of Disneyland Park Theme Parks 2011 2012 2013 Disneyworld Group 121.4 126.4 132.5 Merlin Entertainment 46.4 54 59.8 Universal studios Group 30.8 34.5 36.3 Table 4: Comparative analysis of theme park attendance (Million visits) Theme Parks 2010-2011 2011-2012 2012-2013 Disneyworld Group .7% 4.7% 4.8% Merlin Entertainment 13.2% 16.4% 10.7% Universal studios Group 13.7% 7.9% 5.3% Table 5: Comparative analysis of theme parks growth rate Though Disneyworld is the market leader in the theme park industry, it still faces acute direct competition from Merlin entertainment and Universal studios. Disney’s theme park has witnessed highest total attendance of 132.5 million compared to Merlin and Universal group’s 59.8 million and 36.3 million. Merlin entertainment and Universal studio have witnessed high growth rate in foot falls from 2010 – 2013. All the three theme park groups have presence across various regions vis-a-vis US, Europe, Middle East and Asia. Merlin has more than 10 theme parks in different states of the US that makes Disney and Universal studios the only competitors in California. The theme park industry is exposed to seasonality when it comes to direct competition. They operate on a year round basis and the occupancy is at its peak during the summer and spring time when the schools are off for vacations. Apart from direct competition Disney is also exposed to indirect competition from third party service providers like lodging partners, restaurants, spas, merchandise shops, Disney cruise line and vacation clubs (AECOM., 2015). Strengths Strong brand name Global presence Lower price advantage Presence of many SBU i.e. resorts, dining, clubs, etc High brand visibility owing to Walt Disney production. Weakness’ Difficulty in managing its SBUs Lack of safety measures for rides It has a niche market Opportunities High US tourist flow and international arrivals Capitalizing on Walt Disney’s brand Service opportunity in developing countries. Threats Local competition from Merlin entertainment and Universal studio. Low cost theme parks in emerging economies. Demand is driven by seasonality Table 6: SWOT analysis of Disneyland Theme park (Walt Disney., 2015) Market segmentation strategy It refers to the various customer segments Disneyworld caters to. Identifying the market segments allow companies to better position their brands with proper promotional strategies. Disney’s theme park segmentation strategies of its products and services has been analysed with respect to four dimensions i.e. geographic, demographic, psychographic and behavioural (Daft, 2008). Disney’s segmentation strategy Service portfolio Segmentation Basis Attractions Thrill level – big drops, small drops, water rides Interests – discovery, character experience, fastpass Age group – kids, tweens, teens Height Entertainment Entertainment type – fireworks, stage shows, night time spectaculars Interests – classic characters, Disney channels Age interest – kids, tweens, teens Dining Dining experience – buffet, casual dining, bars and lounges Price range Cuisine – American, Asian, Italian What does the customer want to buy? The theme park industry renders entertainment experience to its customers. Disneyworld aims to satisfy its customers at three levels i.e. core, tangible and intangible products. Customers look to buy tickets, food, and merchandise as tangible items and shows, rides, events as intangible items. Why does the customer buy? They buy to enjoy their leisure. It is the underlying need and not the predominant need of the customer. Where do they buy? Disneyland has a global presence. Its theme parks are located in Asia, Europe and US. In order to deliver the same experience at a competitive price it has opened its franchise in different locations to meet the local demand (Disneyland Hong Kong, Tokyo, Shanghai, Paris and California). When do they buy? Disneyland is exposed to seasonality, customers visit during the vacation time i.e. summer, early winter and spring time. It witnesses peak attendance during such seasons (Ferrell, and Hartline, 2012). What price do they want to pay? The price customers pay for their entertainment, stay; dining, etc depend on the geographic, demographic, psychographic and behavioural segments of Disneyland. There are various annual package rates and individual rates for rides, shows, dinners and merchandise. Customers pay for the satisfaction derived from Disney’s entertainment, shows and dining services (Henry, 2011). Pricing strategies Disneyland follows four types of pricing strategies to manage its revenue streams i.e. theme park tickets, special event tickets, annual passports and parking. It should create more physical and non physical rate fences. Owing to its variety of bundle ticket pricing, it might have increased revenue but it affects its profitability. It gets difficult to manage the footfall when there are multiple bundles which are differentiated based on various fences (Hutt, and Speh, 2012). Premium pricing It should try and use premium pricing for longer stays than shorter stays. Introducing newer rate fences with respect to age would bring in additional revenue. Special rate pricing It should give offers on advance booking on holidays to push the revenue. Giving special rates on public holidays will look to stimulate the demand during the slack period. More than 70% of the revenue of theme parks is from entry tickets. Disney has set its entry ticket set at lower levels compared to its peers Universal studio and Merlin. Though it still enjoys highest visits in the theme park industry, still it should aim to increase its per head profitability. Cross segment pricing It offers host of shows, attractions, spas, resorts, dining, merchandise shops, etc. It can look to integrate its pricing across the segments to generate more revenue streams not only from theme park, but also from its other business areas. It enjoys a strong brand value which can be leveraged to generate more cash flows. Owing to such brand value, its demand is more or less inelastic which can be strategically devised to price its services. Physical rate fences Disneyworld can try to bring in more physical rate fence so as to induce more purchases that will improve the revenue line. Rate fencing in respect of age, number of parking cars, number of rooms available to single family members should be considered for better revenue management. Any usage beyond the rate fence should be charged based on the customers historic purchase patterns. Non-physical rate fences Adopting non physical rate fence as a strategy will also result in effective revenue management. Disneyworld should try to make caps to limit the usage, else per head profitability will come down. It should modify the parking time, check in time for resort, special booking window, number of rides and park hops to improve its revenue stream (Disneyland, 2015b). Capacity management strategies Disneyland’s witnessed a growth of 1.5% in its attendance in 2013, whereas the attendance at Magic Kingdom grew at 6%. Disneyland was temporarily closed for reaching its full capacity on last Christmas, and requested its guests to visit the Disneyland California adventure park. Such ineffective capacity management lead to the dissatisfaction of the guests who visited Disneyland California on Christmas day. Disneyworld offers host of services and facilities to its customers. Managing the footfall is a key challenge to its operational efficiency. It has cyclical business model or experiences seasonality. It faces peak demand during summer, early winter and spring time. Managing the crowd so that it does not lead to customer dissonance is an area of capacity improvement. Better space management like introducing separate areas for restaurants, rides, water parks, ticket counters, etc should be implemented, which will result in better crowd management. It should try and reduce the waiting time of customers. During the peak season, ticket counters experience long queue, that can be managed by introducing e-ticketing and vending machines. Introducing electronic system will help reduce the waiting time for customers, as they do not have to stand in queue for buying tickets. It can also introduce new rides, shows, staff, shops, number of rooms for its resorts, etc to build its capacity. Though increasing the capacity will incur additional cost for Disneyworld, still it will lead to more capacity utilization that will result in more revenue streams. Its total capacity is divided into fixed and flexible capacity. The fixed capacity includes number of attractions, restaurants, shops, staff, etc. Disney should look into resource optimization i.e. it should not over utilize its fixed capacity as it will lead to congestion and lower customer satisfaction level. It can introduce flexibility in staffing by building a ratio of permanent and contractual staff. Hiring interns during the peak period will reduce its cost of increasing capacity (Lasserre, 2012). Distribution channel strategies Online distribution channel Disneyworld should extensively use the online platform to reduce its cost per customer. It adds value to its offering by reducing time and effort of its customers. With the advent of social media it can target its key customer segments by providing them useful information regarding various offers and coupons. It can cross sell its other products like merchandise, free stays, food discounts, ride offers and many more. It can leverage its parent brand Walt Disney to create stronger brand equity. Online contests on Walt Disney movies might emerge as a low cost promotion and distribution strategy. It can partner with tech companies like Google, Microsoft and apple to build apps for their theme park, where its guests can procure relevant information on its various offers and prices. Exploring the mobile platform like android and windows will allow Disney to access larger market segment at low cost. Customers can book their tickets through mobile phones and it will also offer endorsement schemes such as gifting a Disneyland tour package to their loved ones. Owing to its cyclical business, the online distribution platform will help Disney to generate revenue even in the off peak period. Offline distribution channel Disney can look to increase its slack period revenue by strengthening its offline distribution. Its growth in annual visits is low compared to Universal Studio and Merlin Entertainment. Though it’s the market leader in theme park industry, yet its annual growth has succumbed to its competitor’s performance. It can cross promote its parent brand to supplement its own revenue stream. Disney should look to premier its new films in its theme parks to attract more footfalls. It can setup stalls and vending machines at shopping malls to distribute coupons and merchandise. Develop its in house retail chain that will not only sell merchandise, but also sell theme park tickets at discounted rate on purchase of every Walt Disney product. This strategy aims at building strong brand value for both the parent brand and the theme park brand as well. Conducting road shows and contests are another channel of distributing its service where lucky customers will get free tickets and discounted rides and food. It can partner with airline companies to distribute discounted tickets to inbound international and national travels. Though online distribution channel aims to increase its operational efficiency, still it needs to connect with its customers to make them feel that they are also a part of the Disney family. Proper media vehicles should be deployed to gain competitive advantage. It should celebrate Disney hours every week during the off peak period to generate revenue that will help recover its fixed expenses as it’s a year round business (Schermerhorn, 2011). Rules and restrictions Disney should implement a set of rules that is in the best interest of its guests and brand image. It should look to frame guidelines that prohibit the use of cameras, carrying bags, disruptive, illegal and unsafe behaviour, smoking, improper dress code that has illicit signs and language, etc. Imposing age and height restrictions for various rides and guests below the age of 14 will be granted access to the park only if accompanied by a major. Transferring of ticket otherwise stated, access to other shows will be granted upon showing valid ticket should be incorporated in its guidelines. All ticket should bear seals that validates or authorises the entry of its guests. It should implement behavioural codes that will maintain the decorum of the park as more than 80% of its attendance comprises children. It should exercise exclusive right to admit or reject the entry of guests that is incumbent upon producing a valid ticket. The above guidelines implementation will ensure safety of its other guests and give equal opportunity to all its customers to enjoy its services. Such prohibitions and rights also protect its revenue in case of forgery, illegitimate activities, and infringement of the stated guidelines. References AECOM., (2015). Theme and museum index report. Retrieved from: http://www.aecom.com/What+We+Do/Economics/Theme+Index+Report. Daft, L., R., (2008). The New Era of Management. Ohio: Cengage Learning EMEA. Disneyland., (2015). Annual passports. Retrieved from: https://disneyland.disney.go.com/passes/today/. Disneyland., (2015). Things to do. Retrieved from: https://disneyland.disney.go.com/. Ferrell, O., C., and Hartline, M., (2012). Marketing Strategy. Ohio: Cengage Learning. Henry, A., (2011). Understanding Strategic Management. New York: Oxford University Press. Hutt, M., Speh, T., (2012). Business Marketing Management. Ohio: Cengage Learning. Lasserre, P., (2012). Global Strategic Management. Singapore: Palgrave Macmillan. Schermerhorn, R., J., (2011). Exploring Management. USA: John Wiley & Sons. Walt Disney., (2015). Reports and Financial Information. Retrieved from: http://thewaltdisneycompany.com/investors/financial-information. Read More